Houston County Board of Education, Perry, Georgia, annual financial report for the fiscal year ended June 30, 2012 (including independent auditor's reports)

HOUSTON COUNTY BOARD OF EDUCATION
PERRY, GEORGIA
ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012
(Including Independent Auditor's Reports)

HOUSTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I

FINANCIAL

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

EXHIBITS

BASIC FINANCIAL STATEMENTS

DISTRICT-WIDE FINANCIAL STATEMENTS

A

STATEMENT OF NET ASSETS

B

STATEMENT OF ACTIVITIES

FUND FINANCIAL STATEMENTS

C

BALANCE SHEET

GOVERNMENTAL FUNDS

D

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET

TO THE STATEMENT OF NET ASSETS

E

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES

IN FUND BALANCES

GOVERNMENTAL FUNDS

F

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT

OF REVENUES, EXPENDITURES AND CHANGES IN FUND

BALANCES TO THE STATEMENT OF ACTIVITIES

G

STATEMENT OF FIDUCIARY NET ASSETS

FIDUCIARY FUNDS

H

NOTES TO THE BASIC FINANCIAL STATEMENTS

SCHEDULES

REQUIRED SUPPLEMENTARY INFORMATION

1 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND

Page
i
1 2 4 5 6 7 8 9
29

HOUSTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -

SECTION I
FINANCIAL
SCHEDULES
SUPPLEMENTARY INFORMATION
2 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 3 SCHEDULE OF STATE REVENUE 4 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS

Page
30 32 33

SECTION II
COMPLIANCE AND INTERNAL CONTROL REPORTS
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

HOUSTON COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS -
SECTION V MANAGEMENT'S RESPONSES SCHEDULE OF MANAGEMENT'S RESPONSES

SECTION I FINANCIAL

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 28, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Houston County Board of Education
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Ladies and Gentlemen:
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information (Exhibits A through H) of the Houston County Board of Education as of and for the year ended June 30, 2012, which collectively comprise the Board's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Houston County Board of Education's management. Our responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Board's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Houston County Board of Education, as of June 30, 2012, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated March 28, 2013, on our consideration of the Houston County Board of Education's internal control over financial reporting and on our tests of its compliance with certain provisions of laws,
2012ARL-11

regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
Management's Discussion and Analysis and the Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as presented on pages i through x and page 29 respectively, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Houston County Board of Education's financial statements as a whole. The accompanying supplementary information consists of Schedules 2 through 4, which includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24.
Respectfully,

GSG:as 2012ARL-11

Greg S. Griffin State Auditor

HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012
The discussion and analysis of Houston County Board of Education's financial performance provides an overall review of the School District's financial activities for the fiscal year ended June 30, 2012. The intent of this discussion and analysis is to look at the School District's financial performance as a whole. Readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the School District's financial performance.
Financial Highlights
Key financial highlights for 2012 are as follows:
On the district-wide financial statements, net assets increased $6.6 million which represents a 2 percent increase from 2011. This total increase was due to governmental activities since the School District has no business-type activities.
General revenues accounted for $120.9 million in revenue or 44.5 percent of all revenues. Program specific revenues in the form of charges for services and sales, grants and contributions accounted for $150.3 million or 55.5 percent of total revenues of $271.2 million.
The School District had $264.6 million in expenses related to governmental activities; only $150.3 million of these expenses were offset by program specific charges for services, grants or contributions. General revenues (primarily taxes) of $120.9 million were adequate to provide for these programs.
Among major funds, the General Fund had $248.5 million in revenues and other financing sources, and $252.0 million in expenditures and other financing uses. The General Fund's balance decreased to $66.6 million.
Using the Basic Financial Statements
This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the Houston County Board of Education as a financial whole, or as an entire operating entity.
The Statement of Net Assets and Statement of Activities provide information about the activities of the whole School District, presenting both an aggregate view of the School District's finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements also look at the School District's most significant funds. In the case of the Houston County Board of Education, the General Fund is by far the most significant fund.
Reporting the School District as a Whole
Statement of Net Assets and the Statement of Activities
While this document contains the large number of funds used by the School District to provide programs and activities for the schools, the view of the School District as a whole looks at all financial transactions and asks the question, "How did we do financially during 2012?" The Statement of Net Assets and the Statement of Activities answers this question. These statements include all assets and liabilities using the economic resources focus and accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when the cash is received or paid.
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HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012
These two statements report the School District's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Non-financial factors include the School District's property tax base, facility conditions, required educational programs and other factors.
In the Statement of Net Assets and the Statement of Activities, the School District has one distinct type of activity: Governmental Activities - All of the School District's programs and services are reported here
including instruction, support services, operation and maintenance of plant, pupil transportation, food service, after school program, principal's accounts and various others. Reporting the School District's Most Significant Funds Fund Financial Statements
Fund financial reports provide detailed information about the School District's major funds. The School District uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the School District's most significant funds. The School District's major governmental funds are the General Fund, Capital Projects Fund and the Debt Service Fund. Governmental Funds: Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using the current financial resources measurement focus and the modified accrual accounting method, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are adequate financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. Fiduciary Funds: The School District is the trustee, or fiduciary, for assets that belong to others, such as the employee benefit programs, and school clubs and organizations within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the district-wide financial statements because it cannot use these assets to finance its operations.
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HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012

The School District as a Whole
The perspective of the statement of net assets is of the School District as a whole. Table 1 provides a summary of the Board's net assets for 2012 compared to fiscal year 2011.

Table 1 Net Assets (In Thousands)

Governmental Activities

Fiscal

Fiscal

Year 2012

Year 2011

Assets Current and Other Assets Capital Assets, Net

$

163,303 $

121,441

278,128

285,896

Total Assets

$

441,431 $

407,337

Liabilities Current and Other Liabilities Long-Term Liabilities

$

30,836 $

30,713

74,599

47,206

Total Liabilities

$

105,435 $

77,919

Net Assets Invested in Capital Assets, Net of Related Debt Restricted Unrestricted

$

246,312 $

242,912

69,575

59,015

20,109

27,491

Total Net Assets

$

335,996 $

329,418

Total net assets increased $6.6 million to $336.0 million.
Table 2 shows the changes in net assets for fiscal year 2012 compared to the changes in net assets for fiscal year 2011.

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HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012

Table 2 Changes in Net Assets
(In Thousands)
Revenues Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions Total Program Revenues
General Revenues: Taxes Property Taxes For Maintenance and Operations Sales Taxes Local Option Sales Tax Special Purpose Local Option Sales Tax For Debt Service & Capital Projects Other Sales Tax Grants and Contributions not Restricted Investment Earnings Miscellaneous
Total General Revenues Total Revenues
Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt Total Expenses Increase in Net Assets

Governmental Activities

Fiscal

Fiscal

Year 2012

Year 2011

$ 8,686 140,529 1,168
$ 150,383

$ 8,440 151,670 2,053
$ 162,163

$ 49,807 $ 48,969

21,974

21,777

21,972 952
21,316 138
4,700 $ 120,859 $ 271,242

21,777 893
23,900 176
4,585 $ 122,077 $ 284,240

$ 173,521 $ 167,591

7,861 6,346 3,895 1,358 17,304 2,192 16,348 10,212 2,687 1,378

7,931 5,977 3,936 1,286 16,658 2,015 15,791 9,461 2,377 2,089

2,251 788
17,183 1,340
$ 264,664 $ 6,578

2,432 822
15,197 866
$ 254,429 $ 29,811

iv

HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 Figure A shows the funding sources for the revenues. 50.5 percent of the School District's revenues are derived from state grants. Property Taxes make up 18.4 percent of the total funding, while an additional 16.6 percent is earned from the county's sales taxes.
As shown in Figure B, Instruction comprised 65.6 percent of governmental program expenses. Administration and Other Services (2.9 percent) consist of the central office, business & warehouse, and other central operations of the School District. Interest expense equal to .5 percent of total expenses was attributable to capital leases and the outstanding bonds for capital projects.
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HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012

Governmental Activities
The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services comparing fiscal year 2012 with fiscal year 2011. That is, it identifies the cost of these services supported by tax revenue and unrestricted State entitlements.

Table 3 Governmental Activities
(In Thousands)

Total Cost of Services

Net Cost of Services

Fiscal

Fiscal

Fiscal

Fiscal

Year 2012

Year 2011 Year 2012

Year 2011

Instruction

$ 173,521 $ 167,591 $ 67,262 $ 51,385

Support Services

Pupil Services

7,861

7,931

4,664

4,328

Improvement of Instructional Services

6,346

5,977

2,274

1,807

Educational Media Services

3,895

3,936

1,219

846

General Administration

1,358

1,286

848

697

School Administration

17,304

16,658

11,859

10,383

Business Administration

2,192

2,015

1,779

1,564

Maintenance and Operation of Plant

16,348

15,791

9,463

8,822

Student Transportation Services

10,212

9,461

8,061

6,898

Central Support Services

2,687

2,377

2,132

1,764

Other Support Services

1,378

2,089

705

1,393

Operations of Non-Instructional Services

Enterprise Operations

2,251

2,432

676

948

Community Services

788

822

788

822

Food Services

17,183

15,197

1,211

-257

Interest on Short-Term and Long-Term Debt

1,340

866

1,340

866

Total Expenses

$ 264,664 $ 254,429 $ 114,281 $ 92,266

Although program revenues make up a majority of the funding, the School District is still dependent upon tax revenues for governmental activities. Approximately 38.7 percent of Instruction activities are supported through taxes and other general revenues, and for all governmental activities general revenue support is 43.2 percent.
The School District's Funds
The School District's governmental funds are accounted for using the modified accrual basis of accounting. Total governmental funds had revenues and other financing sources of $324.7 million and expenditures and other financing uses of $283.7 million. There was an increase in the fund balance totaling $41.0 million for the governmental funds as a whole. The General Fund decreased by $3.5 million due to the School District's decision to utilize a portion of the fund balance to offset some of the state revenue reductions. Initial use of the fund balance was projected to be higher, but was reduced from additional revenues earned. The Capital Projects Funds had an increase of $42.3 million and Debt Service Funds had an increase of $2.3 million. The Capital Project Funds' increase was due to the sale of $43.6 million in general obligation bonds during fiscal year 2012 to be repaid

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HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012
by the proceeds of a Special Purpose Local Option Sales Tax (SPLOST) to be collected during fiscal years 2012 to 2017, and from the proceeds of the SPLOST. The Debt Service Funds' increase was attributable to the collection of SPLOST proceeds for the future payments of interest and principal payments due on the outstanding debt associated with the general obligation bonds. The positive change in the fund balance of the Governmental Funds for the year reflects that the School District was able to meet current costs. General Fund Budgeting Highlights The School District's budget is prepared in accordance with Georgia law. The most significant budgeted fund is the General Fund. During the course of fiscal year 2012, the School District amended its General Fund budget as needed. The School District uses site-based budgeting. The budgeting systems are designed to tightly control total site budgets but provide flexibility for site management. For the General Fund, the final budgeted revenues and other financing sources of $251.5 million was greater than the original budgeted amount of $245.6 million by $5.9 million. The overall difference was mainly due to additional state and federal grant awards of $3.5 million and additional local revenues. The actual revenues and other financing sources of $248.5 million was less than the budgeted amount by $3.0 million due mainly to the elimination of intrafund transfers, resulting in a decrease in other financing sources. The final budgeted expenditures and other financing uses of $256.9 million was more than the original budgeted amount of $255.0 million by $1.9 million. This difference was due mainly to additional and unbudgeted benefit costs enacted by the state during the year and budgeting for specific federal grants in advance of anticipated and actual need. The actual expenditures and other financing uses of $252.0 million was $4.9 million less than budgeted. The reduced expenditures were mainly a result of an adjustment removing intrafund transfers, reductions of expenditures by the School District, and the requirement to budget for specific federal grants in advance of anticipated and actual need. The differences in the beginning and ending budgeted fund balances to actual is the result of the School District's decision to include the Local Option Sales Taxes that had previously been reported as deferred as current and prior year revenues for report purposes.
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HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012

Capital Assets and Debt Administration
Capital Assets
At the end of fiscal year 2012, the School District had $278.1 million invested in capital assets, net of depreciation, all in governmental activities. Table 4 shows fiscal year 2012 balances compared with fiscal year 2011 balances.

Table 4 Capital Assets at June 30 (Net of Depreciation, In Thousands)

Governmental Activities

Fiscal

Fiscal

Year 2012

Year 2011

Land Construction In Progress Buildings and Building Improvements Equipment Land Improvements Intangible Assets

$ 10,189 2,071
252,007 7,248 5,195 1,418

$ 10,113 391
261,067 7,881 5,520 924

Total

$ 278,128 $ 285,896

The overall capital assets decreased in fiscal year 2012 by $7.7 million due to the recognition of depreciation expense and the lack of any substantial construction projects during the current year.
Debt
At June 30, 2012, the School District had $65.6 million in bonds outstanding with $22.0 million due within one year, $0.6 million in capital leases outstanding with $0.2 million due within one year, $2.6 million in compensated absences earned as of the end of the year, and $5.8 million in unamortized bond premiums with $1.3 million due within one year.

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HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012

Table 5 summarizes the long-term debt outstanding at June 30, 2012, compared to fiscal year 2011 balances.

Table 5 Debt at June 30 (In Thousands)

Governmental Activities

Fiscal

Fiscal

Year 2012

Year 2011

General Obligation Bonds Intergovernmental Contract Trust Certificates Capital Leases Compensated Absences Unamortized Bond Premiums

$ 65,560 $ 36,490

5,225

624

1,186

2,611

2,481

5,804

1,824

$ 74,599 $ 47,206

At June 30, 2012, the School District's overall legal bonding authority was $373.9 million based on the assessed value of taxable property as of December 31, 2011. The School District's bonds have assigned ratings of Aa1 and AA+. In addition, the State of Georgia limits the amount available to be spent each year on multiyear leases, purchase, or lease purchase contracts to 7.5 percent of the locally generated taxes for the maintenance and operation of the school system. Both the current year payments and subsequently scheduled payments are well below the $5.5 million threshold.
Current Issues
The Houston County School District consists of 38 campuses located in Houston County, a fastgrowing area with a population of approximately 139,900. Current enrollment is approximately 27,610 students in grades PK-12. Among Georgia's 159 counties, Houston ranks 15th in population, 20th in economics, 16th in income, and 122nd in overall millage rate.
The State of Georgia experienced serious financial hardship over the past few years, and as a result, more pressure is being placed on the local school systems to prioritize their instructional programs and to fund them with additional locally generated revenues. In fiscal year 2003, the State enacted Austerity Reductions for the State allotments, resulting in a reduction of state revenues to the School District of approximately $2.0 million in 2003, $4.3 million in 2004, $5.1 million in 2005, $5.1 million in 2006, $2.6 million in 2007, $2.2 million in 2008, $8.4 million in 2009, $23.8 million in 2010, $19.1 million in 2011, and $20.1 million in 2012. Reductions in other state grants and programs resulted in the total reduction of state funding for 2012 reaching approximately $36.7 million. For fiscal year 2013, additional austerity reductions of $20.2 million have already been approved by the state for the School District. Since the austerity reductions were enacted, the reductions total $112.9 million and the overall reduction of state funding is approximately $188.2 million. While Houston County's class sizes remain below the state maximum recommendations, continued reductions in state funding combined with a growing system place a heavier burden on the locally generated taxes to help offset this loss of state funding. Despite these challenges, the Houston County Board of Education is strong financially, and we remain optimistic about the ability of the School District to maximize all of the financial resources to continue to provide a quality education to our students.

ix

HOUSTON COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2012
In the past, the county has thrived even during recent downturns in the economy. Sales tax revenue growth exceeded many other parts of Georgia, with shoppers paying seven percent tax on purchases. The School District experienced an average increase of 6.5 percent growth each year since 1984 for the System's Local Option Sales Tax collections. However, during the calendar year 2007, the county's sales tax growth slowed tremendously to only 3.6 percent. During calendar year 2008, the School District's collections continued to decrease to a rate of 2.3 percent below that of the prior year, resulting in the lowest growth in 11 years. In calendar year 2009, the collections rose to .3 percent over the 2008 collections. In calendar year 2010 collections continued to rise to 1.2 percent, and the increase was 1.8 and 3.2 percent respectively, in 2011 and 2012. Although the collections are still well below the average growth rate, the School District remains optimistic and has had numerous conversations with the Georgia Department of Revenue concerning our stagnant growth, and will continue to monitor this situation closely. The unemployment rate was 7.4 percent in 2010, and continues to be well below the state and national rates.
Houston County is home to Robins Air Force Base, Georgia's largest single industry. Robins Air Force Base had an estimated fiscal year 2010 economic impact on the State of Georgia of $4.2 billion, with Houston County being by far the largest beneficiary of that impact. Other large employers located in the county include the Board of Education, Houston County Hospital Authority, Perdue Farms, Frito-Lay Company, Anchor Glass, and Wal-Mart Associates. Of Houston's employed residents, 62.8 percent work in county.
Houston is Georgia's sixty-fifth largest county in total area. As one of the fastest growing counties in Georgia, Houston had a 15 percent population increase from 1980-1990, a 24 percent increase from 1990-2000, and a 26.3 percent increase from 2000-2010. The population as of the 2010 census is 139,900. This growth results in school system enrollment increases between 175 to 728 students for the past five years.
Houston has three municipalities: Centerville with a population of 7,148; Perry with 13,579; and Warner Robins with 66,588. The county also includes the communities of Bonaire, Clinchfield, Elko, Haynesville, Henderson, and Kathleen.
The median household income as of 2009 was $50,733 per year. As of 2009, the per capita income was $25,192. 88 percent of the county's adult population is a high school graduate or higher with over 25.8 percent having a bachelor degree or higher.
Contacting the School District's Financial Management
This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Stephen J. Thublin, Assistant Superintendent for Finance and Business Operations, at the Houston County Board of Education, P.O. Box 1850, 1100 Main Street, Perry, Georgia 31069. You may also email your questions to Stephen.Thublin@hcbe.net.
x

HOUSTON COUNTY BOARD OF EDUCATION

HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF NET ASSETS JUNE 30, 2012
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories Deferred Charges Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation)
Total Assets
LIABILITIES
Accounts Payable Salaries and Benefits Payable Interest Payable Claims Incurred but not Reported (IBNR) Retainages Payable Long-Term Liabilities
Due Within One Year Due in More Than One Year
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for
Continuation of Federal Programs Debt Service Capital Projects Property Tax Rollback Unrestricted
Total Net Assets
Total Liabilities and Net Assets

EXHIBIT "A"
GOVERNMENTAL ACTIVITIES
$ 30,698,344.35 100,188,844.81 7,362,529.12 17,385,119.85 2,267,593.14 73,366.93 4,905,752.17 422,102.88 12,260,096.18 265,867,638.13
$ 441,431,387.56
$ 6,861,003.53 21,625,065.59 834,287.25 1,400,138.38 115,829.32 23,572,171.99 51,026,727.11
$ 105,435,223.17
$ 246,311,830.09 3,751,990.20
22,392,522.73 8,323,122.32
35,107,520.33 20,109,178.72 $ 335,996,164.39
$ 441,431,387.56

The notes to the basic financial statements are an integral part of this statement. - 1 -

HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2012

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Community Services Food Services Interest on Short-Term and Long-Term Debt
Total Governmental Activities
General Revenues Taxes Property Taxes For Maintenance and Operations Sales Taxes Local Option Sales Tax Special Purpose Local Option Sales Tax For Debt Services For Capital Projects Other Sales Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Total General Revenues
Change in Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year

EXPENSES

CHARGES FOR SERVICES

$ 173,521,063.23 $
7,861,213.94 6,345,948.38 3,894,982.94 1,357,810.68 17,303,560.06 2,192,432.10 16,347,984.65 10,212,297.61 2,687,191.65 1,377,637.51
2,250,767.99 787,689.39
17,183,531.30 1,340,204.71
$ 264,664,316.14 $

2,366,984.28
102,131.15 1,574,684.18 4,641,910.15 8,685,709.76

The notes to the basic financial statements are an integral part of this statement. - 2 -

EXHIBIT "B"

PROGRAM REVENUES OPERATING GRANTS AND
CONTRIBUTIONS

CAPITAL GRANTS AND CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET ASSETS

$ 103,123,978.22 $
3,196,830.86 4,070,975.54 2,646,558.07
509,664.55 5,415,988.34
401,335.36 6,877,274.82 1,820,080.55
547,369.56 672,618.75
11,246,399.69
$ 140,529,074.31 $

768,384.59 $ 671.95
1,088.52 29,443.39 28,573.80 11,686.07
8,057.16 228,658.50
8,076.37
83,820.61
1,168,460.96 $

-67,261,716.14
-4,663,711.13 -2,273,884.32 -1,218,981.48
-848,146.13 -11,858,997.92
-1,779,410.67 -9,462,652.67 -8,061,427.41 -2,131,745.72
-705,018.76
-676,083.81 -787,689.39 -1,211,400.85 -1,340,204.71
-114,281,071.11

$

49,807,230.27

21,973,593.91

18,156,701.41 3,815,240.56 952,429.50
21,316,314.74 137,485.65
4,699,840.53

$

120,858,836.57

$

6,577,765.46

329,418,398.93

$

335,996,164.39

- 3 -

HOUSTON COUNTY BOARD OF EDUCATION BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2012

EXHIBIT "C"

ASSETS
Cash and Cash Equivalents Investments Accounts Receivable, Net
Taxes State Government Federal Government Other Inventories
Total Assets

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 29,825,898.31 $ 862,669.07 $

9,776.97 $ 30,698,344.35

38,031,422.82

38,936,388.98

23,221,033.01

100,188,844.81

5,438,665.60 16,630,865.39
2,267,593.14 73,366.93
4,905,752.17

1,923,863.52 754,254.46

7,362,529.12 17,385,119.85
2,267,593.14 73,366.93
4,905,752.17

$ 97,173,564.36 $ 42,477,176.03 $ 23,230,809.98 $ 162,881,550.37

LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts Payable Salaries and Benefits Payable Retainages Payable Deposits and Deferred Revenue
Total Liabilities
FUND BALANCES
Nonspendable Restricted Assigned Unassigned
Total Fund Balances
Total Liabilities and Fund Balances

$ 6,861,003.53 21,625,065.59 $ 2,064,898.21
$ 30,550,967.33 $

115,829.32 115,829.32

$ 6,861,003.53 21,625,065.59 115,829.32 2,064,898.21
$ 30,666,796.65

$ 4,905,752.17

$ 4,905,752.17

37,342,358.42 $ 42,308,098.98 $ 23,230,809.98

102,881,267.38

3,983,405.01

53,247.73

4,036,652.74

20,391,081.43

20,391,081.43

$ 66,622,597.03 $ 42,361,346.71 $ 23,230,809.98 $ 132,214,753.72

$ 97,173,564.36 $ 42,477,176.03 $ 23,230,809.98 $ 162,881,550.37

The notes to the basic financial statements are an integral part of this statement. - 4 -

HOUSTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET ASSETS JUNE 30, 2012

EXHIBIT "D"

Total Fund Balances - Governmental Funds (Exhibit "C")
Amounts reported for Governmental Activities in the Statement of Net Assets are different because:
Capital Assets used in Governmental Activities are not financial resources and therefore are not reported in the funds. These assets consist of:
Land Construction in Progress Land Improvements Buildings Equipment Intangible Assets Accumulated Depreciation
Total Capital Assets
Taxes that are not available to pay for current period expenditures are deferred in the funds.
Property Taxes
Other Long-Term Assets are not available to pay for current period expenditures and therefore, are deferred on the Statement of Net Assets.
Deferred Charges - Capitalized Bond Issuance Costs
Long-Term Liabilities, including Bonds Payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-Term Liabilities at year-end consist of:
Bonds Payable Accrued Interest Capital Leases Compensated Absences Unamortized Bond Premiums Claims and Judgments
Total Long-Term Liabilities
Net Assets of Governmental Activities (Exhibit "A")

$ 132,214,753.72

$ 10,188,888.77 2,071,207.41 6,927,841.91
359,904,432.13 22,647,959.47 2,693,144.38
-126,305,739.76

278,127,734.31

2,064,898.21

422,102.88

$ -65,560,000.00 -834,287.25 -623,653.79
-2,610,824.72 -5,804,420.59 -1,400,138.38

-76,833,324.73

$ 335,996,164.39

The notes to the basic financial statements are an integral part of this statement. - 5 -

HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2012

EXHIBIT "E"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation
Capital Outlay Debt Services
Principal Interest
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Proceeds of Long-Term Capital-Related Debt Premiums on Bonds Sold Transfers In Transfers Out
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning

GENERAL FUND

DISTRICTWIDE
CAPITAL PROJECTS
FUND

DEBT SERVICE
FUND

TOTAL

$ 49,801,133.01 22,926,023.41 $
136,170,569.44 26,040,186.43 8,685,709.76 103,198.07 4,748,630.21

3,815,240.56 $ 754,254.46
15,568.75 50.00

$ 18,156,701.41
18,718.83

49,801,133.01 44,897,965.38 136,924,823.90 26,040,186.43
8,685,709.76 137,485.65
4,748,680.21

$ 248,475,450.33 $ 4,585,113.77 $ 18,175,420.24 $ 271,235,984.34

$ 161,837,949.49 $ 4,309,803.03

$ 166,147,752.52

7,852,463.83 6,331,773.78 3,508,773.09 1,357,810.68 16,931,473.94 1,953,329.73 16,373,878.03 9,644,312.95 2,398,444.24 1,884,870.60 2,250,767.99
787,689.39 16,380,195.87

2,800.00 445,588.22 $ 229,639.50
1,768,830.72

7,601.25

7,852,463.83 6,331,773.78 3,511,573.09 1,357,810.68 16,931,473.94 2,406,519.20 16,373,878.03 9,644,312.95 2,628,083.74 1,884,870.60 2,250,767.99
787,689.39 16,380,195.87
1,768,830.72

562,847.85 41,916.53

19,715,000.00 1,651,481.33

20,277,847.85 1,693,397.86

$ 250,098,497.99 $ 6,756,661.47 $ 21,374,082.58 $ 278,229,242.04

$ -1,623,047.66 $ -2,171,547.70 $ -3,198,662.34 $ -6,993,257.70

$ 43,560,000.00

$ 43,560,000.00

4,487,647.75

4,487,647.75

$ 5,459,616.33

5,459,616.33

$ -1,887,000.00

-3,572,616.33

-5,459,616.33

$ -1,887,000.00 $ 44,475,031.42 $ 5,459,616.33 $ 48,047,647.75

$ -3,510,047.66 $ 42,303,483.72 $ 2,260,953.99 $ 41,054,390.05

70,132,644.69

57,862.99 20,969,855.99

91,160,363.67

Fund Balances - Ending

$ 66,622,597.03 $ 42,361,346.71 $ 23,230,809.98 $ 132,214,753.72

The notes to the basic financial statements are an integral part of this statement. - 6 -

HOUSTON COUNTY BOARD OF EDUCATION RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2012

EXHIBIT "F"

Total Net Change in Fund Balances - Governmental Funds (Exhibit "E")
Amounts reported for Governmental Activities in the Statement of Activities are different because:
Capital Outlays are reported as expenditures in Governmental Funds. However, in the Statement of Activities, the cost of Capital Assets is allocated over their estimated useful lives as depreciation expense. In the current period, these amounts are:
Capital Outlay Depreciation Expense
Excess of Capital Outlay over Depreciation Expense
Taxes reported in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds.
The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, donations, and disposals) is to decrease net assets.
Bond issuance costs, deferred gains on refundings and similar items when debt is first issued are reported as an expenditure in Governmental Funds, but are reported as deferred charges on the Statement of Net Assets and amortized over the term of the debt, using the straight-line method. The detail of this difference in the current period is as follows:
Deferral of Bond Issuance Costs Amortization of Bond Issuance Costs
Bond Proceeds provide current financial resources to Governmental Funds; however, issuing debt increases Long-Term Liabilities in the Statement of Net Assets. In the current period, proceeds were received from:
General Obligation Bonds Issued, Including a Premium of $4,487,647.75
Repayment of Long-Term Debt is reported as an expenditure in Governmental Funds, but the repayment reduces Long-Term Liabilities in the Statement of Net Assets. In the current year, these amounts consist of:
Bond Principal Retirements Capital Lease Payments Trust Certificate Retirements Amortization of Bond Premium
Total Long-Term Debt Repayments
Interest expense reported in the Statement of Activities is recorded as incurred, whereas interest expense in the governmental fund statements is reported when paid.
Some items reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in Governmental Funds. These activities consist of:
Increase in Compensated Absences Decrease in Claims and Judgments
Total Additional Expenditures
Change in Net Assets of Governmental Activities (Exhibit "B")

$ 41,054,390.05

$ 3,323,335.26 -10,684,126.02

-7,360,790.76

6,097.26

-407,496.63

$

445,588.22

-120,934.86

324,653.36

-48,047,647.75

$ 14,490,000.00 562,847.85
5,225,000.00 507,025.00

20,784,872.85

-153,831.85

$ -129,714.16 507,233.09

377,518.93

$ 6,577,765.46

The notes to the basic financial statements are an integral part of this statement. - 7 -

HOUSTON COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS JUNE 30, 2012
ASSETS Cash and Cash Equivalents Accounts Receivable, Net
Other
Total Assets
LIABILITIES Accounts Payable Funds Held for Others
Total Liabilities

EXHIBIT "G"
AGENCY FUNDS $ 1,199,569.02
762.26 $ 1,200,331.28
$ 429,339.37 770,991.91
$ 1,200,331.28

The notes to the basic financial statements are an integral part of this statement. - 8 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Note 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Houston County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a school board elected by the voters and a Superintendent appointed by the Board. The Board is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
The Houston County School District Building Authority was created by House Bill 2038 during the 1994 session of the Georgia General Assembly. The purpose of the Authority is to acquire, construct, own and convey real property and personal property for the benefit of the Houston County Board of Education. The members of the Authority consist of the Chairman of the Houston County Board of Education, Superintendent of the Houston County Board of Education and the Chairman of the Board of Commissioners of Houston County.
The Houston County School District Building Authority is a component unit of the Houston County Board of Education and as such, the Authority's financial activity has been blended with the Houston County Board of Education's basic financial statements.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the District-wide financial statements, fund financial statements and notes to the basic financial statements of the Houston County Board of Education.
District-wide Statements: The Statement of Net Assets and the Statement of Activities display information about the financial activities of the overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support of the School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.

- 9 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Fund Financial Statements: The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal activities. Separate statements for each category (governmental and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.
The School District reports the following major governmental funds:
General Fund is the School District's primary operating fund. It accounts for and reports all financial resources not accounted for and reported in another fund.
District-wide Capital Projects Fund accounts for and reports financial resources including Special Purpose Local Option Sales Tax (SPLOST), Bond Proceeds, and grants from Georgia State Financing and Investment Commission that are restricted, committed or assigned to the expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets.
Debt Service Fund accounts for and reports financial resources that are restricted, committed, or assigned including taxes (sales) legally restricted for the payment of general long-term principal and interest.
The School District reports the following fiduciary fund type:
Agency funds account for assets held by the School District as an agent for various funds, governments, or individuals.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The District-wide governmental and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims

- 10 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
CASH AND CASH EQUIVALENTS
COMPOSITION OF DEPOSITS Cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated Section 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations.
INVESTMENTS
COMPOSITION OF INVESTMENTS Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interestearning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. Both participating interest-earning contracts and money market investments with a maturity at purchase greater than one year and equity investments are reported at fair value. The Official Code of Georgia Annotated Section 36-83-4 authorizes the School District to invest its funds. In selecting among options for investment or among institutional bids for deposits, the highest rate of return shall be the objective, given equivalent conditions of safety and liquidity. Funds may be invested in the following:
(1) Obligations issued by the State of Georgia or by other states,
(2) Obligations issued by the United States government,
(3) Obligations fully insured or guaranteed by the United States government or a United States government agency,
(4) Obligations of any corporation of the United States government,
(5) Prime banker's acceptances,
(6) The Georgia Fund 1 administered by the State of Georgia, Office of State Treasurer
(7) Repurchase agreements, and
8) Obligations of other political subdivisions of the State of Georgia.
The School District does not have a formal policy regarding investment policies that address credit risks, custodial credit risks, concentration of credit risks, interest rate risks or foreign currency risks.

- 11 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

RECEIVABLES

Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.

PROPERTY TAXES

The Houston County Board of Commissioners fixed the property tax levy for the 2011 tax digest year (calendar year) on August 31, 2011 (levy date). Taxes were due on December 20, 2011 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2011 tax digest are reported as revenue in the governmental funds for fiscal year 2012. The Houston County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2012, for maintenance and operations amounted to $49,801,133.01.

The tax millage rate levied for the 2011 tax year (calendar year) for the Houston County Board of Education was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

13.34 mills

SALES TAXES

In 1982, the voters of Houston County approved a local amendment to the Constitution of the State of Georgia which limited the maximum allowable mill rate for ad valorem taxes levied by the District each year. The maximum allowable mill rate for the District in each year must be reduced by the mill rate which would yield on the digest for that year an amount equal to the amount received by the District in the immediately preceding year from the local sales and use tax. Local Option Sales Tax revenue, at the fund reporting level, during the fiscal year amounted to $21,973,591.91 and was recorded in the General Fund. Local Option Sales Tax is to be used for the maintenance and operation of the School District, and the corresponding millage rate was adjusted accordingly.

Special Purpose Local Option Sales Tax, at the fund reporting level, during the year amounted to $21,971,941.97 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years.

INVENTORIES

FOOD INVENTORIES On the basic financial statements, inventories of donated food commodities used in the preparation of meals are reported at their Federally assigned value and purchased foods inventories are reported at cost (weighted average). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.

- 12 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

SUPPLY INVENTORY On the basic financial statements, inventories of consumable supplies and materials are reported at cost (weighted average). The School District uses the consumption method to account for inventories of consumable supplies whereby an asset is recorded when supplies are purchased and expenditures are recorded at the time the supplies are consumed.

CAPITAL ASSETS

Capital assets purchased, including capital outlay costs, are recorded as expenditures in the fund financial statements at the time of purchase (including ancillary charges). On the District-wide financial statements, all purchased capital assets are valued at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at estimated fair market value on the date donated. Disposals are deleted at depreciated recorded cost. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets are not capitalized. Depreciation is computed using the straight-line method. The School District does not capitalize book collections or works of art. During the fiscal year under review, no events or changes in circumstances affecting a capital asset that may indicate impairment were known to the School District.

Capitalization thresholds and estimated useful lives of capital assets reported in the District-wide statements are as follows:

Capitalization Policy

Estimated Useful Life

Land Land Improvements Buildings and Improvements Equipment
a. Vehicles b. Other Machinery and Equipment
Intangible Assets Construction in Progress

All All All
All $10,000.00 and any item necessary for insurance purposes $100,000.00 to $1.0 million
All

N/A 20 to 25 years 10 to 50 years
5 to 14 years 6 to 10 years
10 to 20 years N/A

Depreciation is used to allocate the actual or estimated historical cost of all capital assets over estimated useful lives, with the exception of intangible assets which are amortized.

Amortization of intangible assets such as water, timber, and mineral rights, easements, patents, trademarks, copyrights and internally generated software is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 20 years.

COMPENSATED ABSENCES

Members of the Teachers Retirement System of Georgia (TRS) may apply unused sick leave toward early retirement in excess of sixty days. Employees retiring under the Teachers Retirement System of Georgia are eligible to be paid for up to sixty days of leave at a rate of $22.50 per day, upon retirement. Employees retiring under the Public School Employees' Retirement System will be

- 13 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

eligible to sell all unused leave up to the one hundred day maximum accumulation, at $22.50 per day. The employee must have a minimum of five consecutive years of employment with the School District, contiguous with retirement.
Public School Employees' Retirement System employees who terminate employment may apply to sell unused leave in excess of forty-five days but not to exceed one hundred days at $22.50 per day. The employee must have a minimum of five consecutive years of employment with the School District, contiguous to a voluntary termination.
Accrued vacation leave will be paid to all eligible employees at their daily rate up to a maximum of twenty days. Vacation leave of twelve days is awarded to all full time personnel employed on a twelve month basis. No other employees are eligible to earn vacation leave. Vacation leave not utilized during the fiscal year may be carried over to the next fiscal year, providing such vacation leave does not exceed twenty days.

Beginning of Year Liability

Increases

Decreases

End of Year Liability

2010 2011 2012

$ 2,240,333.71 $ 1,626,315.43 $ 1,739,572.28 $ 2,127,076.86 $ 2,127,076.86 $ 1,745,785.41 $ 1,391,751.71 $ 2,481,110.56 $ 2,481,110.56 $ 1,858,101.57 $ 1,728,387.41 $ 2,610,824.72

GENERAL OBLIGATION BONDS
The School District issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. In the District-wide financial statements, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as deferred charges and amortized over the term of the debt.
In the fund financial statements, the School District recognizes bond premiums and discounts, as well as bond issuance costs during the fiscal year bonds are issued. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. General obligation bonds are direct obligations and pledge the full faith and credit of the government. The outstanding amount of these bonds is recorded in the Statement of Net Assets.
NET ASSETS
The School District's net assets in the District-wide Statements are classified as follows:
Invested in capital assets, net of related debt - This represents the School District's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt.
Restricted net assets - These represent resources for which the School District is legally or contractually obligated to spend resources for bus replacement, continuation of Federal programs, debt service and capital projects in accordance with restrictions imposed by external third parties.

- 14 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Unrestricted net assets - Unrestricted net assets represent resources derived from property taxes, sales taxes, grants and contributions not restricted to specific programs, charges for services, and miscellaneous revenues. These resources are used for transactions relating to the educational and general operations of the School District, and may be used at the discretion of the Board to meet current expenses for those purposes.
FUND BALANCES
The School District's fund balances are classified as follows:
Nonspendable Amounts that cannot be spent either because they are in a nonspendable form or because they are legally or contractually required to be maintained intact.
Restricted Constraints are placed on the use of resources are either (1) externally imposed conditions by creditors, grantors, contributors, or laws and regulations of other governments or (2) imposed by law through constitutional provisions or enabling legislation.
Committed Amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board of Education. The Board of Education is the School District's highest level of decision-making authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Board. Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements.
Assigned Amounts that are constrained by the School District's intent to be used for specific purposes, but are neither restricted nor committed. The intent should be expressed by (1) the Board of Education or (2) the Superintendent, or the Assistant Superintendent for Finance and Business Operations, to assign amounts to be used for specific purposes.
Unassigned The residual classification for the General Fund. This classification represents fund balances that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund.

- 15 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Fund Balances of the Governmental Funds at June 30, 2012, are as follows:

Nonspendable Inventories
Restricted Continuation of Federal Programs Capital Projects Debt Service Property Tax Rollback
Assigned Local Capital Outlay Projects School Activity Accounts Subsequent Period Expenditures
Unassigned

$ 4,905,752.17

$ 2,234,838.09 42,308,098.98 23,230,809.98 35,107,520.33

102,881,267.38

$

53,247.73

1,957,637.01

2,025,768.00

4,036,652.74 20,391,081.43

Fund Balance, June 30, 2012

$ 132,214,753.72

It is the goal of the Houston County Board of Education to achieve and maintain an unassigned fund balance in the general fund at fiscal year end of not less than 4% of budgeted expenditures, not to exceed 15% of the total budget of the subsequent fiscal year, net of any Committed Reserve Balance for capital expenditures, in compliance with O.C.G.A. 20-2-167(a)5. The School District should provide for the maintenance of annual expenditure increases necessary to provide a consistent educational environment satisfactory to its citizens. If the unassigned fund balance at fiscal year end falls below the goal, the School District shall develop a restoration plan to achieve and maintain the minimum fund balance.

When multiple categories of fund balance are available for expenditure, the School District will start with the most restricted category and spend those funds first before moving down to the next category with available funds.

USE OF ESTIMATES

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Note 3: BUDGETARY DATA
The budget is a complete financial plan for the School District's fiscal year, and is based upon careful estimates of expenditures together with probable funding sources. The budget is legally adopted each year for the general, debt service, and capital projects funds. There is no statutory prohibition regarding over expenditure of the budget at any level. The budget for all governmental funds is prepared and adopted by fund and function. The legal level of budgetary control was established by the Board at the aggregate fund level. The budget for the General Fund was prepared in accordance with accounting principles generally accepted in the United States of America.

The budgetary process begins with the School District's administration presenting an initial budget for the Board's review. The administration makes revisions as necessary based on the Board's guidelines and a tentative budget is approved. After approval of this tentative budget by the Board,

- 16 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

such budget is advertised at least once in a newspaper of general circulation in the locality, as well as the School District's website. At the next regularly scheduled meeting of the Board after advertisement, the Board receives comments on the tentative budget, makes revisions as necessary and adopts a final budget. The approved budget is then submitted, in accordance with provisions of Official Code of Georgia Annotated section 20-2-167(c), to the Georgia Department of Education. The Board may increase or decrease the budget at any time during the year. All unexpended budget authority lapses at fiscal year-end.
See Schedule 1 General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual for a detail of any over/under expenditures during the fiscal year under review.
Note 4: DEPOSITS AND INVESTMENTS
COLLATERALIZATION OF DEPOSITS Official Code of Georgia Annotated (OCGA) Section 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110 percent of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (OCGA 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 110 percent of the daily pool balance.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and
(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by or securities guaranteed by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

- 17 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a deposit policy for custodial credit risk. At June 30, 2012, the bank balances were $38,767,363.36. The bank balances were covered by Federal depository insurance or collateralized with securities held by the pledging financial institution in the School District's name.

CATEGORIZATION OF INVESTMENTS The School District's investments as of June 30, 2012, are presented below. All investments are presented by investment type and debt securities are presented by maturity.

Investment Type

Fair Value

Investment Maturity

Less Than 1 Year

1 - 5 Years

Certificates of Deposit

$

587,346.88 $

30,157.28 $ 557,189.60

Investment Pools Office of State Treasurer Georgia Fund 1

99,601,495.48

Total Investments

$ 100,188,842.36

The Georgia Fund 1, formerly referred to as LGIP, administered by the State of Georgia, Office of the State Treasurer is not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office of the State Treasurer for the Georgia Fund 1 (Primary Liquidity Portfolio) does not provide for investment in derivatives or similar investments. Additional information on the Georgia Fund 1 is disclosed in the State of Georgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at www.audits.ga.gov/SGD/CAFR.html.

The Primary Liquidity Portfolio consists of Georgia Fund 1 which is not registered with the SEC as an investment company but does operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share. The pool is an AAAm rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2012, was 48 days.

Note 5: NON-MONETARY TRANSACTIONS

The School District receives food commodities from the United States Department of Agriculture (USDA) for school breakfast and lunch programs. These commodities are recorded at their Federally assigned value. See Note 2 Inventories

- 18 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Note 6: CAPITAL ASSETS The following is a summary of changes in the Capital Assets during the fiscal year:

Governmental Activities Capital Assets, Not Being Depreciated:
Land Construction Work In Progress

Balances July 1, 2011

Increases

Decreases

Balances June 30, 2012

$ 10,113,474.77 $ 390,608.88

75,414.00 1,756,012.53 $

$ 75,414.00

10,188,888.77 2,071,207.41

Total Capital Assets, Not Being Depreciated $ 10,504,083.65 $ 1,831,426.53 $

75,414.00 $ 12,260,096.18

Capital Assets, Being Depreciated: Buildings and Improvements Equipment Land Improvements Intangible Assets

$ 360,922,186.08 22,091,730.19 $ 6,927,841.91 1,966,426.00

$ 840,604.35
726,718.38

1,017,753.95 $ 284,375.07

359,904,432.13 22,647,959.47 6,927,841.91 2,693,144.38

Less: Accumulated Depreciation: Buildings and Improvements Equipment Land Improvements Intangible Assets

99,855,136.04 14,210,693.29
1,408,208.60 1,042,208.20

8,790,407.72 1,335,470.42
325,269.36 232,978.52

748,140.22 146,492.17

107,897,403.54 15,399,671.54 1,733,477.96 1,275,186.72

Total Capital Assets, Being Depreciated, Net $ 275,391,938.05 $ -9,116,803.29 $

407,496.63 $ 265,867,638.13

Governmental Activity Capital Assets - Net

$ 285,896,021.70 $ -7,285,376.76 $

482,910.63 $ 278,127,734.31

Capital assets being acquired under capital leases as of June 30, 2012, are as follows:

Governmental Funds

Equipment Less: Accumulated Depreciation

$

1,167,384.40

437,767.20

$

729,617.20

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HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Current year depreciation expense by function is as follows:

Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Food Services
Note 7: INTERFUND TRANSFERS

$

7,733,185.67

$

8,738.70

14,156.10

382,909.47

371,600.52

151,976.66

104,782.84

875,093.88

105,032.66

2,014,290.83 936,649.52

$ 10,684,126.02

Interfund transfers for the year ended June 30, 2012, consisted of the following:

Transfer to

Transfers From

District-wide

General

Capital

Fund

Projects

Debt Service Fund

$ 1,887,000.00 $ 3,572,616.33

Transfers are used to provide supplemental funding for the Debt Service Fund to make Trust Certificate payments.

Note 8: RISK MANAGEMENT

The School District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors or omissions; job related illness or injuries to employees; acts of God and unemployment compensation.
The School District has obtained commercial insurance for risk of loss associated with torts, assets, errors or omissions, and acts of God. The School District has neither significantly reduced coverage for these risks nor incurred losses (settlements) which exceeded the School District's insurance coverage in any of the past three years.
The School District has established a limited risk management program for workers' compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liabilities being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. An excess coverage insurance policy covers individual claims in excess of $350,000.00 loss per occurrence, up to the statutory limit.

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HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Changes in the workers' compensation claims liability during the last two fiscal years are as follows:

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

2011 2012

$ 1,810,908.19 $ 1,256,626.05 $ 1,160,162.77 $ 1,907,371.47

$ 1,907,371.47 $

634,636.45 $ 1,141,869.54 $ 1,400,138.38

The School District is self-insured with regard to unemployment compensation claims. The School District accounts for claims within the General Fund with expenses/expenditures and liabilities being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated.

Changes in the unemployment compensation claims liability during the last two fiscal years are as

follows:

Claims and

Beginning of Year

Changes in

Claims

End of Year

Liability

Estimates

Paid

Liability

2011 $ 2012 $

0.00 $ 0.00 $

341,010.77 $ 73,903.08 $

341,010.77 $ 73,903.08 $

0.00 0.00

The School District has purchased surety bonds to provide additional insurance coverage as follows:

Position Covered

Amount

Superintendent Each Principal All Employees (Blanket Bond)

$ 250,000.00 -

$ 50,000.00 $ 50,000.00 $ 500,000.00

Note 9: OPERATING LEASES

Houston County Board of Education has entered into various leases as lessee for copiers, servers and mail equipment. These leases are considered for accounting purposes to be operating leases. Lease expenditures for the year ended June 30, 2012, for governmental funds amounted to $43,200.72. Future minimum lease payments for these leases are as follows:

Year Ending

Governmental Funds

2013 2014 2015 2016

$

6,360.00

5,760.00

5,760.00

4,800.00

Total

$

22,680.00

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HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Note 10: LONG-TERM DEBT
CAPITAL LEASES The Houston County Board of Education entered into various lease agreements for the purchase of buses and athletic equipment. These lease agreements qualify as capital leases for accounting purposes, and, therefore, have been recorded at the present value of the future minimum lease payments as of the date of their inception.
COMPENSATED ABSENCES Compensated absences represent obligations of the School District relating to Employees' rights to receive compensation for future absences based upon service already rendered. This obligation relates only to vesting accumulating leave in which payment is probable and can be reasonably estimated. Typically, the General Fund is the fund used to liquidate this long-term debt. The School District uses the vesting method to compute compensated absences.
GENERAL OBLIGATION DEBT OUTSTANDING General Obligation Bonds currently outstanding are as follows:

Purpose

Interest Rates

Amount

General Government - Series 2005 General Government - Series 2012

3.60% - 5.25% 1.125% - 4.00%

$ 22,000,000.00 43,560,000.00

$ 65,560,000.00
The changes in Long-Term Debt during the fiscal year ended June 30, 2012, were as follows:

Balance July 1, 2011

Additions

Governmental Funds Deductions

Balance June 30, 2012

Due Within One Year

G. O. Bonds Trust Certificates Capital Leases Compensated Absences (1) Bond Premium Amortized

$ 36,490,000.00 $ 43,560,000.00 $ 14,490,000.00 $ 65,560,000.00 $ 22,000,000.00

5,225,000.00

5,225,000.00

0.00

1,186,501.64

562,847.85

623,653.79

255,399.15

2,481,110.56

1,858,101.57

1,728,387.41

2,610,824.72

1,823,797.84

4,487,647.75

507,025.00

5,804,420.59

1,316,772.84

$ 47,206,410.04 $ 49,905,749.32 $ 22,513,260.26 $ 74,598,899.10 $ 23,572,171.99

(1) The portion of Compensated Absences due within one year has been determined to be immaterial to the basic financial statements.

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HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

At June 30, 2012, payments due by fiscal year which includes principal and interest for these items are as follows:

Capital Leases

General Obligation Debt

Unamortized

Fiscal Year Ended June 30:

Principal

Interest

Principal

Interest

Bond Premium

2013 2014 2015 2016 2017 2018

$

255,399.15 $

284,910.17

36,423.05

37,606.80

9,314.62

15,859.83 $ 11,625.11
2,708.70 1,524.95
303.55

22,000,000.00 $ 1,765,000.00
11,520,000.00 9,885,000.00
10,085,000.00 10,305,000.00

2,021,979.55 $ 1,565,681.26 1,317,631.26
889,531.26 490,131.26 144,215.63

1,316,772.84 181,834.21
1,186,815.93 1,018,374.61 1,038,979.05 1,061,643.95

Total Principal and Interest $

623,653.79 $

32,022.14 $ 65,560,000.00 $ 6,429,170.22 $ 5,804,420.59

Note 11: ON-BEHALF PAYMENTS

The School District has recognized revenues and costs in the amount of $17,831,808.03 for health insurance and retirement contributions paid on the School District's behalf by the following State Agencies.
Georgia Department of Education Paid to the Georgia Department of Community Health For Health Insurance of Certified Personnel In the amount of $17,470,978.00
Paid to the Teachers' Retirement System For Teachers' Retirement System (TRS) Employer's Cost In the amount of $65,703.03
Office of State Treasurer Paid to the Public School Employees' Retirement System For Public School Employees' Retirement (PSERS) Employer's Cost In the amount of $295,127.00
Note 12: SIGNIFICANT COMMITMENTS

The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2012, together with funding available:

Project

Unearned Executed Contracts

Funding Available From State

13-676-067 13-676-068 13-676-069 13-676-070 13-676-071 New Elementary #10 (C. B. Watson)

$

517,545.48 $

574,200.88

233,530.62

481,912.95

587,956.56

1,630,917.74

324,534.58 92,118.66 92,803.51
315,628.03 303,498.76

$

4,026,064.23 $

1,128,583.54

The amounts described in this note are not reflected in the basic financial statements.

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HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

Note 13: SIGNIFICANT CONTINGENT LIABILITIES
Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. The School District believes that such disallowances, if any, will be immaterial to its overall financial position.
The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance of routine School District operations. The ultimate disposition of these proceedings is not presently determinable, but is not believed to be material to the basic financial statements.
Note 14: POST-EMPLOYMENT BENEFITS
GEORGIA SCHOOL PERSONNEL POST-EMPLOYMENT HEALTH BENEFIT FUND
Plan Description. The Georgia School Personnel Post-employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health Benefit Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (O.C.G.A.) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). The Department of Community Health, which includes the School OPEB Fund, issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.
Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. For members with fewer than five years of service as of January 1, 2012, contributions also vary based on years of service. On average, members with five years or more of service as of January 1, 2012, pay approximately 25 percent of the cost of the health insurance coverage. In accordance with the Board resolution dated December 8, 2011, for members with fewer than five years of service as of January 1, 2012, the State provides a premium subsidy in retirement that ranges from 0% for fewer than 10 years of service to 75% (but no greater than the subsidy percentage offered to active employees) for 30 or more years of service. The subsidy for eligible dependents ranges from 0% to 55% (but no greater than the subsidy percentage offered to dependents of active employees minus 20%). No subsidy is available to Medicare eligible members not enrolled in a Medicare Advantage Option. The Board of Community Health sets all member premiums by resolution and in accordance with the law and applicable revenue and expense projections. Any subsidy policy adopted by the Board may be changed at any time by Board resolution and does not constitute a contract or promise of any amount of subsidy.
Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "pay-as-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years.

- 24 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2012:

For certificated teachers, librarians and regional educational service agencies and certain other eligible participants:

June 2011 July 2011 August 2011 - March 2012 April 2012 - June 2012

1.429% of covered payroll for July coverage 18.534% of covered payroll for August coverage 24.000% of covered payroll for September - April coverage
3.958% of covered payroll for May - July coverage

For non-certificated school personnel:

July 2011 - August 2011

$246.20 per member per month

September 2011 - June 2012 $296.20 per member per month

No additional contribution was required by the Board for fiscal year 2012 nor contributed to the School OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the School plan for other post-employment benefits and are subject to appropriation.

The School District's combined active and retiree contributions to the health insurance plans, which

equaled the required contribution, for the current fiscal year and the preceding two fiscal years were

as follows:

Percentage

Required

Fiscal Year

Contributed

Contribution

2012 2011 2010

100%

$

23,729,507.59

100%

$

21,670,004.54

100%

$

20,692,426.59

Note 15: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)

Plan Description. The TRS is a cost-sharing multiple-employer defined benefit plan created in 1943 by an act of the Georgia General Assembly to provide retirement benefits for qualifying employees in educational service. A Board of Trustees comprised of active and retired members and ex-officio State employees is ultimately responsible for the administration of TRS. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the Georgia Department of Audits and Accounts.

On October 25, 1996, the Board created the Supplemental Retirement Benefits Plan of the Georgia Teachers Retirement System (SRBP-TRS). SRBP-TRS was established as a qualified excess benefit plan in accordance with Section 415 of the Internal Revenue Code (IRC) as a portion of TRS. The purpose of SRBP-TRS is to provide retirement benefits to employees covered by TRS whose benefits are otherwise limited by IRC Section 415. Beginning July 1, 1997, all members and retired former members in TRS are eligible to participate in the SRBP-TRS whenever their benefits under TRS exceed the IRC Section 415 imposed limitation on benefits.

- 25 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

TRS provides service retirement, disability retirement, and survivor's benefits. The benefit structure of TRS is defined and may be amended by State statute. A member is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. A member is eligible for early retirement after 25 years of creditable service.
Normal retirement (pension) benefits paid to members are equal to 2% of the average of the member's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. Early retirement benefits are reduced by the lesser of one-twelfth of 7% for each month the member is below age 60 or by 7% for each year or fraction thereof by which the member has less than 30 years of service. It is also assumed that certain cost-of-living adjustments, based on the Consumer Price Index, will be made in future years. Retirement benefits are payable monthly for life. A member may elect to receive a partial lump-sum distribution in addition to a reduced monthly retirement benefit. Death, disability and spousal benefits are also available.
Funding Policy. TRS is funded by member and employer contributions as adopted and amended by the Board of Trustees. Members become fully vested after 10 years of service. If a member terminates with less than 10 years of service, no vesting of employer contributions occurs, but the member's contributions may be refunded with interest. Member contributions are limited by State law to not less than 5% or more than 6% of a member's earnable compensation. Member contributions as adopted by the Board of Trustees for the fiscal year ended June 30, 2012, were 5.53% of annual salary. The member contribution rate will increase to 6.00% effective July 1, 2012. Employer contributions required for fiscal year 2012 were 10.28% of annual salary as required by the June 30, 2009, actuarial valuation. The employer contribution rate will increase to 11.41% effective July 1, 2012.
Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2012 2011 2010

100%

$

100%

$

100%

$

PUBLIC SCHOOL EMPLOYEES' RETIREMENT SYSTEM (PSERS)

14,443,215.27 13,964,970.70 13,544,690.10

Bus drivers, lunchroom personnel, and maintenance and custodial personnel are members of the Public School Employees' Retirement System of Georgia. The System is funded by contributions by the employees and by the State of Georgia. The School District makes no contribution to this plan.

DEFINED CONTRIBUTION PLAN

In July 1999, Houston County Board of Education began an employer paid 403(b) annuity plan for the group of employees covered under the Public School Employees' Retirement System (PSERS). Recognizing that PSERS was a limited defined contribution and defined benefit plan which did not provide for an adequate retirement for this group of employees, it was the Board's desire to supplement the retirement of this group.

The Board selected AIG Valic as the provider of this plan. For each employee covered under PSERS, the Board began matching 50% of employee's contributions up to 5.0% of the employee's base pay.

- 26 -

HOUSTON COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2012

EXHIBIT "H"

The employee becomes vested in the plan with 5 years of experience. Employees who had already achieved 5 years of experience at the time the plan was implemented were vested upon enrollment.
Funds accumulated in the employer paid accounts are only available to the employee upon termination of employment and 5 years of service to Houston County Board of Education. If an employee terminates employment prior to achieving 5 years of service, funds paid on behalf of the non-vested employee are credited back to the Board.
Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2012 2011 2010

100%

$

100%

$

100%

$

84,473.26 88,955.83 106,949.19

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HOUSTON COUNTY BOARD OF EDUCATION GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2012

SCHEDULE "1"

REVENUES
Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Enterprise Operations Community Services Food Services Operation
Debt Service
Total Expenditures
Excess of Revenues over (under) Expenditures
OTHER FINANCING SOURCES (USES)
Other Sources Other Uses
Total Other Financing Sources (Uses)
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

VARIANCE OVER/UNDER

$ 48,600,000.00 $ 49,750,000.00 $ 49,801,133.01 $

22,332,977.00

22,332,977.00

22,926,023.41

134,776,261.00

136,080,779.00

136,170,569.44

24,210,174.10

26,357,345.10

26,040,186.43

8,060,081.00

8,600,217.00

8,685,709.76

139,000.00

120,000.00

103,198.07

4,545,975.00

5,134,725.00

4,748,630.21

$ 242,664,468.10 $ 248,376,043.10 $ 248,475,450.33 $

51,133.01 593,046.41
89,790.44 -317,158.67
85,492.76 -16,801.93 -386,094.79
99,407.23

$ 164,241,929.00 $ 162,353,657.00 $ 161,837,949.49 $

515,707.51

7,723,542.10 4,654,374.00 3,763,774.00 1,537,172.00 16,999,981.00 1,872,602.00 16,642,540.00 9,584,361.00 2,344,551.00 1,510,486.03 1,955,000.00
800,000.00 16,379,670.00

7,922,722.10 6,375,666.00 3,515,734.00 1,558,897.00 16,500,568.00 2,439,184.00 16,418,211.00 10,270,381.00 2,440,108.00 2,044,143.03 2,315,000.00
800,000.00 16,779,670.00

7,852,463.83 6,331,773.78 3,508,773.09 1,357,810.68 16,931,473.94 1,953,329.73 16,373,878.03 9,644,312.95 2,398,444.24 1,884,870.60 2,250,767.99
787,689.39 16,380,195.87
604,764.38

70,258.27 43,892.22
6,960.91 201,086.32 -430,905.94 485,854.27
44,332.97 626,068.05
41,663.76 159,272.43
64,232.01 12,310.61 399,474.13 -604,764.38

$ 250,009,982.13 $ 251,733,941.13 $ 250,098,497.99 $ 1,635,443.14

$ -7,345,514.03 $ -3,357,898.03 $ -1,623,047.66 $ 1,734,850.37

$ 2,925,000.00 $ 3,085,000.00

$ -3,085,000.00

-4,976,490.00

-5,127,000.00 $ -1,887,000.00

3,240,000.00

$ -2,051,490.00 $ -2,042,000.00 $ -1,887,000.00 $

155,000.00

$ -9,397,004.03 $ -5,399,898.03 $ -3,510,047.66 $ 1,889,850.37

35,540,741.07

35,822,982.43

70,132,644.69

34,309,662.26

$ 26,143,737.04 $ 30,423,084.40 $ 66,622,597.03 $ 36,199,512.63

Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include the Restricted Other - Property Tax Rollback fund balance in the beginning or ending fund balances.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 29 -

HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program
Total Child Nutrition Cluster
Other Programs Pass-Through From Georgia Department of Education Food Services ARRA-Child Nutrition Discretionary Grants Limited Availability
Total U. S. Department of Agriculture
Education, U. S. Department of Impact Aid Cluster Direct Impact Aid
Education for Homeless Children and Youth Cluster Pass-Through From Georgia Department of Education Education for Homeless Children and Youth
Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Preschool Grants
Total Special Education Cluster
Title I, Part A Cluster Pass-Through From Georgia Department of Education Title I - Grants to Local Educational Agencies
Other Programs Pass-Through From Georgia Department of Education Career and Technical Education - Basic Grants to Schools Education Jobs Fund English Language Acquisition Grants Even Start - State Educational Agencies Improving Teacher Quality State Grants Migrant Education - State Grant Program
Total Other Programs
Total U. S. Department of Education
Health and Human Services, U. S. Department of Child Care and Development Block Grant Cluster Pass-Through From Georgia Department of Early Care and Learning ARRA - Child Care and Development Block Grant
Other Programs Pass-Through From Georgia Department of Human Resources Temporary Assistance for Needy Families
Total U. S. Department of Health and Human Services
- 30 -

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

* 10.553 * 10.555

N/A

(2)

N/A

$

16,283,037.58 (1)

$

16,283,037.58

10.579

N/A

11,798.00

$

16,294,835.58

84.041

N/A

(3)

84.196

N/A

$

49,567.05

84.027 84.173

N/A

$

N/A

$

4,724,721.00 147,600.00
4,872,321.00

84.010

N/A

$

6,057,629.81

84.048 84.410 84.365 84.213 84.367 84.011

N/A

$

N/A

N/A

N/A

N/A

N/A

176,436.00 64,217.00
240,220.29 173,449.68 916,484.10
68,230.50

$

1,639,037.57

$

12,618,555.43

93.713

N/A

$

4,500.00

93.558

N/A $

14,202.10 18,702.10

HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2012

SCHEDULE "2"

FUNDING AGENCY PROGRAM/GRANT
Defense, U. S. Department of Direct R.O.T.C. Program P.L. 102-375

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

(4) (3)

Total Expenditures of Federal Awards

$

28,932,093.11

N/A = Not Available

Notes to the Schedule of Expenditures of Federal Awards

(1) Includes the Federally assigned value of donated commodities for the Food Donation Program in the amount of $1,320,060.69.
(2) Expenditures for the funds earned on the School Breakfast Program ($2,443,622.22) were not maintained separately and are included in the 2012 National School Lunch Program.
(3) Funds earned on the Impact Aid Program and P.L. 102-375, in the amounts of $1,614,380.57 and $569,820.17, respectively, do not require reporting of expenditures.
(4) Expenditures for this program were supported by $349,512.47 in Federal assistance and the balance from State and/or Local Funds.

Major Programs are identified by an asterisk (*) in front of the CFDA number.

The School District did not provide Federal Assistance to any Subrecipient.

The accompanying schedule of expenditures of Federal awards includes the Federal grant activity of the Houston County Board of Education and is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 31 -

HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2012

SCHEDULE "3"

AGENCY/FUNDING
GRANTS Bright from the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program
Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle Grades (6-8) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Category I - V Gifted Student - Category VI Remedial Education Program Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Categorical Grants Pupil Transportation Regular Nursing Services Vocational Supervisors Education Equalization Funding Grant Food Services Vocational Education Amended Formula Adjustment Other State Programs Dual Enrollment Health Insurance Math and Science Supplement Move on When Ready Grant Preschool Handicapped Program Pupil Transportation - State Bonds Teachers' Retirement Virtual Schools
Georgia State Financing and Investment Commission Reimbursement on Construction Projects
Human Resources, Georgia Department of Family Connection
Office of State Treasurer Public School Employees Retirement

See notes to the basic financial statements.

- 32 -

GOVERNMENTAL FUND TYPES

CAPITAL

GENERAL

PROJECTS

FUND

FUND

TOTAL

$ 3,247,421.59

$ 3,247,421.59

9,772,456.00 438,022.00
18,265,619.00 990,164.00
9,019,410.00 632,078.00 139,822.00
14,456,850.00 12,349,206.00
4,309,102.00
12,574,431.00 7,632,617.00 485,172.00 1,161,348.00 1,083,008.00 2,640,248.00 783,977.00 548,444.00
2,668,666.00 5,363,446.00 6,856,380.00
1,498,009.00 373,251.00 28,189.00
19,132,114.00 388,982.00 721,377.00
-20,112,828.00
213,134.00 17,470,978.00
23,980.32 400.00
377,282.00 228,658.50
65,703.03 4,325.00

9,772,456.00 438,022.00
18,265,619.00 990,164.00
9,019,410.00 632,078.00 139,822.00
14,456,850.00 12,349,206.00
4,309,102.00
12,574,431.00 7,632,617.00 485,172.00 1,161,348.00 1,083,008.00 2,640,248.00 783,977.00 548,444.00
2,668,666.00 5,363,446.00 6,856,380.00
1,498,009.00 373,251.00 28,189.00
19,132,114.00 388,982.00 721,377.00
-20,112,828.00
213,134.00 17,470,978.00
23,980.32 400.00
377,282.00 228,658.50
65,703.03 4,325.00

$ 754,254.46 44,000.00 295,127.00

754,254.46 44,000.00
295,127.00

$ 136,170,569.44 $ 754,254.46 $ 136,924,823.90

HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS
YEAR ENDED JUNE 30, 2012

SCHEDULE "4"

PROJECT

ORIGINAL ESTIMATED
COST (1)

CURRENT ESTIMATED COSTS (2)

AMOUNT EXPENDED IN CURRENT YEAR (3) (4) (5)

AMOUNT EXPENDED IN PRIOR YEARS (3) (4)

TOTAL COMPLETION
COST

EXCESS PROCEEDS NOT
EXPENDED

2007 SPLOST Providing funds to pay the cost of acquiring, constructing, and equipping two new elementary schools, two new middle schools, one new high school, and to the extent funds are available, one additional new elementary school, acquiring land for future schools and instructional and administrative technology improvements for existing schools, adding to, renovating, repairing, improving, and equipping existing school buildings and other buildings and facilities useful or desirable in connection therewith, and acquiring any necessary property therefore, both real and personal, to pay capitalized interest, and to pay expenses all at a maximum cost of $123,000,000.00.

$ 123,000,000.00 $ 110,546,548.15 $

0.00 $ 110,546,548.15 $ 110,546,548.15

2012 SPLOST (1) Acquiring instructional and administrative technology equipment
(2) Acquiring safety and security equipment
(3) Adding to, renovating, repairing, improving, and equipping existing school buildings and other buildings and facilities
(4) Acquiring, constructing, and equipping two replacement elementary schools
(5) Acquiring, constructing, and equipping a central transportation (bus) facility
(6) Acquiring, constructing, and equipping stadium and tennis facilities
(7) Acquiring any necessary property, both real and personal
(8) Paying (Legal and Administrative) expenses incident to accomplishing the foregoing

$ 26,000,000.00 $ 4,542,242.53 $

1,100,000.00

8,174.69

48,050,764.00

943,242.37

25,000,000.00

737,356.16

5,800,000.00

0.00

10,655,398.00

0.00

1,500,000.00

75,414.00

490,000.00

445,588.22

0.00 $ 0.00

4,542,242.53 8,174.69

0.00 0.00 0.00 0.00 0.00 0.00

943,242.37 737,356.16
0.00 0.00 75,414.00 445,588.22

$ 125,000,000.00 $ 118,596,162.00 $ 6,752,017.97 $

0.00 $ 6,752,017.97

ESTIMATED COMPLETION
DATE
June 30, 2010 June 30, 2017 June 30, 2013 June 30, 2017 June 30, 2015 June 30, 2017 June 30, 2017 June 30, 2017 June 30, 2017

(1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax.

(2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion.

(3) The voters of Houston County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects.

(4) In addition to the expenditures shown above, the School District has incurred interest to provide advance funding for the above projects as follows:

Prior Years

$ 13,383,541.67

Current Year

1,407,375.00

Total

$ 14,790,916.67

(5) During fiscal year 2012, the Houston County Board of Education issued General Obligation Bond Issue 2012, in part to refund a portion of the 1998 Houston County School District Building Authority Intergovernmental Contract Trust Certificates. $3,572,616.33 is included in the amount expended in the current year debt service for this purpose.

See notes to the basic financial statements.

- 33 -

SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 28, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Houston County Board of Education
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Ladies and Gentlemen:
We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Houston County Board of Education as of and for the year ended June 30, 2012, which collectively comprise Houston County Board of Education's basic financial statements and have issued our report thereon dated March 28, 2013. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
Management of Houston County Board of Education is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Houston County Board of Education's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Houston County Board of Education's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Houston County Board of Education's internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

2012YB-20

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Houston County Board of Education's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance or other matter that is required to be reported under Government Auditing Standards and which is described in the accompanying Schedule of Findings and Questioned Costs as item FS-6761-12-01.
Houston County Board of Education's response to the finding identified in our audit is described in the accompanying Schedule of Management's Responses. We did not audit Houston County Board of Education's response and, accordingly, we express no opinion on the response.
This report is intended solely for the information and use of management, members of the Houston County Board of Education, others within the entity, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully,

GSG:as 2012YB-20

Greg S. Griffin State Auditor

Greg S. Griffin
STATE AUDITOR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
March 28, 2013

Honorable Nathan Deal, Governor Members of the General Assembly Members of the State Board of Education
and Superintendent and Members of the Houston County Board of Education
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133
Ladies and Gentlemen:
Compliance
We have audited Houston County Board of Education's compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2012. Houston County Board of Education's major Federal programs are identified in the Summary of Auditor's Results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major Federal programs is the responsibility of Houston County Board of Education's management. Our responsibility is to express an opinion on Houston County Board of Education's compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the Houston County Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Houston County Board of Education's compliance with those requirements.
In our opinion, the Houston County Board of Education complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, 2012.

2012SA-10

Internal Control Over Compliance
Management of Houston County Board of Education is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to Federal programs. In planning and performing our audit, we considered Houston County Board of Education's internal control over compliance with the requirements that could have a direct and material effect on a major Federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Houston County Board of Education's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.
This report is intended solely for the information and use of management, members of the Houston County Board of Education, others within the entity, Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully,

GSG:as 2012SA-10

Greg S. Griffin State Auditor

SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

HOUSTON COUNTY BOARD OF EDUCATION AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.

SECTION IV FINDINGS AND QUESTIONED COSTS

HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012

I SUMMARY OF AUDITOR'S RESULTS

Financial Statements

Type of auditor's report issue: Governmental Activities; General Fund; Capital Projects Fund; Debt Service Fund; Aggregate Remaining Fund Information

Unqualified

Internal control over financial reporting: Material weakness identified? Significant deficiency identified?

No None Reported

Noncompliance material to financial statements noted:

Yes

Federal Awards

Internal Control over major programs: Material weakness identified? Significant deficiency identified?

No None Reported

Type of auditor's report issued on compliance for major programs: All major programs

Unqualified

Any audit findings disclosed that are required to be reported in

accordance with OMB Circular A-133, Section 510(a)?

No

Identification of major programs:

CFDA Numbers 10.553, 10.555

Name of Federal Program or Cluster Child Nutrition Cluster

Dollar threshold used to distinguish between Type A and Type B programs:

$943,975.00

Auditee qualified as low-risk auditee?

Yes

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

EXPENDITURES/LIABILITIES/DISBURSEMENTS Improper Use of Bond Proceeds Material Noncompliance Finding Control Number: FS-6761-12-01

Condition: Improper use of Bond proceeds issued in conjunction with the imposition of the Special Purpose Local Option Sales Tax (SPLOST).
Criteria: The Official Code of Georgia Annotated (O.C.G.A.) 48-8-121 states, "The proceeds received from the tax authorized by this part shall be used ... exclusively for the purpose or purposes specified in the resolution or ordinance calling for imposition of the tax". The SPLOST resolution as passed by the voters of Houston County read as follows:

- 1 -

HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2012
II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
"Shall a one percent sales and use tax for education currently in effect in Houston County be continued for a period of time not to exceed 20 calendar quarters and for raising of not more than $125,000,000 for the purpose of acquiring constructing, repairing, improving, renovating, extending, upgrading, and equipping school buildings and support facilities in the Houston County School District useful or desirable in connection therewith, including and acquiring any necessary property therefore, both real and personal, specifically including the following: (1) acquiring instructional and administrative technology equipment; (2) acquiring safety and security equipment; (3) adding to, renovating, repairing, improving, and equipping existing school buildings and other buildings and facilities; (4) acquiring, constructing, and equipping two replacement elementary schools; (5) acquiring, constructing, and equipping a central transportation (bus) facility; (6) acquiring, constructing, and equipping stadium and tennis facilities; and (7) paying expenses incident to accomplishing the foregoing?
If continuation of the tax is approved by the voters, such vote shall constitute approval of the issuance of general obligation debt of the Houston County School District in the principal amount of up to $43,560,000, repayable from the proceeds of the aforesaid sales and use tax, for the purpose of funding such portions of the above projects as maybe acquired, constructed and equipped with the proceeds of general obligation debt."
Questioned Cost: $3,572,616.33
Information: On March 27, 2012, the School District used general obligation bond proceeds issued in conjunction with the imposition of the SPLOST referendum in the amount of $3,572,616.33 to repay existing Intergovernmental Contract Trust Certificates (long-term debt) held by the Houston County School District Building Authority, a component unit of the Houston County Board of Education, instead of acquiring, constructing, improving, renovating and equipping new projects as approved in the SPLOST referendum.
Cause: The School District, based on advice from bond counsel, assumed that retirement of previously incurred debt was an allowable use of SPLOST proceeds as approved by the voters of Houston County. However, retirement of previously incurred debt was not included in the ballot question presented and approved by the voters of Houston County on November 8, 2011.
Effect: The repayment of debt related to expenditures incurred in 1998 appears to be a violation of the referendum approved by the citizens of Houston County on November 8, 2011.
Recommendation: The School District should establish policies and procedures to ensure expenditures are an appropriate use of SPLOST funds in accordance with State law and the SPLOST referendum as approved by voters of Houston County.
III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.
- 2 -

SECTION V MANAGEMENT'S RESPONSES

HOUSTON COUNTY BOARD OF EDUCATION SCHEDULE OF MANAGEMENT'S RESPONSES
YEAR ENDED JUNE 30, 2012

Finding Control Number: FS-6761-12-01

We do not concur with this finding. The Houston County Board of Education consulted with legal counsel prior to repaying the Intergovernmental Contract Trust Certificates. The attorney felt the expenditures met the definition of the projects detailed in the SPLOST referendum approved on November 8, 2011, because the ballot approved by the voters of Houston County references "acquiring, constructing, repairing, improving, renovating, extending, upgrading, and equipping school buildings and support facilities." The Board maintains this was an acquisition of school buildings since the ownership of those capital assets was not obtained until the final payment was made to the Houston County School District Building Authority.

Contact Person: Title: Telephone: Fax: Email:

Stephen Thublin Assistant Superintendent for Finance and Business Operations (478) 988-6200 (478) 988-6106 stephen.thublin@hcbe.net